Unemployment in Britain jumped the most in 17 years in the three months to
August, as economists and the business community warned that worse is yet to
come as the country heads into a recession.

The number of unemployed people rose to 1.79m, an increase of 164,000 compared with the three months to May and the biggest quarter on quarter rise since mid 1991 when the country was last in recession.

UK unemployment rose in September as the downturn deepens

The figure, based on a definition of unemployment recommended by the International Labour Organisation (ILO), took the UK rate of unemployment to 5.7pc, up from 5.2pc in the previous quarter.

John Cridland, deputy director-general at the Confederation of British Industry, said: “These figures are worse than we expected. They suggest the fallout from the slowdown in the economy is being felt by individuals faster and sooner than previously thought.

“These figures pre-date the collapse of Lehman Brothers and the turbulence which followed, indicating unemployment is likely to rise further through the winter."

Economists agreed that worse lies ahead for the UK, as the labour market usually lags the economy which is expected to enter into recession by the end of the year.

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Today's figures from the Office for National Statistics relate to August, predating the extreme intensification of the financial crisis since the collapse of Lehman.

David Blanchflower, a member of the Bank of England's Monetary Policy Committee, had already said that he expects unemployment to reach 2m by Christmas, and today's figures from the ONS took the UK closer to that level.

"Blanchflower’s gloomy forecast looks highly prescient," said Michael Saunders after the figures were published. "The outturn may well be even worse than Blanchflower expected.

And, of course, the rise in unemployment will probably extend will beyond this coming Christmas. Unemployment probably will still be rising at the end of 2009 as well."

Vicky Redwood, UK economist at Capital Economics, expects unemployment to rise to 3m by the end of 2010.

The ONS also said that the claims for jobless benefits climbed by 31,800 to 939,900 in September, the eighth successive monthly jump.

The gloomy data show that the sharp economic downturn and the prospect of a recession is weighing heavily on business confidence.

However, because inflation is widely believed to have peaked last month, the MPC should have room to follow last week's emergency 50 basis point interest rate cut with further reductions in the coming months as it tries to limit the possibility of a deep and prolonged recession.

Today's unemployment figures tally with the British Chambers of Commerce's September quarterly survey, which showed that employment expectations balances hit a near 16-year low for manufacturers and a 15-year low for service sector companies.

In a separate survey this week the Centre for Economics and Business Research predicted that 62,000 jobs would be lost in the City by the end of next year, wiping out the increases in the number of those employed in the financial district over the past decade.

The number of unemployed people rose to 1.79m, an increase of 164,000 compared with the three months to May and the biggest quarter on quarter rise since mid 1991 when the country was last in recession.

The figure, based on a definition of unemployment recommended by the International Labour Organisation (ILO), took the UK rate of unemployment to 5.7pc, up from 5.2pc in the previous quarter and the highest level in eight years.

John Cridland, deputy director-general at the Confederation of British Industry, said: "These figures are worse than we expected. They suggest the fallout from the slowdown in the economy is being felt by individuals faster and sooner than previously thought.

"These figures pre-date the collapse of Lehman Brothers and the turbulence which followed, indicating unemployment is likely to rise further through the winter."

Economists agreed that worse lies ahead for the UK, as the labour market usually lags the economy which is expected to enter into recession by the end of the year.

Employment minister Tony McNulty, said: "It's a bad picture, but the job is to look forward and see how we can deal with any dip in employment rather than talking about the causes."

David Blanchflower, a member of the Bank of England's Monetary Policy Committee, had already said that he expects unemployment to reach 2m by Christmas, and today's figures from the ONS took the UK closer to that level.

"Blanchflower's gloomy forecast looks highly prescient," said Michael Saunders after the figures were published. "The outturn may well be even worse than Blanchflower expected.

And, of course, the rise in unemployment will probably extend will beyond this coming Christmas. Unemployment probably will still be rising at the end of 2009 as well."

Vicky Redwood, UK economist at Capital Economics, expects unemployment to rise to 3m by the end of 2010.

The ONS also said that the claims for jobless benefits climbed by 31,800 to 939,900 in September, the eighth successive monthly jump.

The gloomy data show that the sharp economic downturn and the prospect of a recession is weighing heavily on business confidence.

However, because inflation is widely believed to have peaked last month, the MPC should have room to follow last week's emergency 50 basis point interest rate cut with further reductions in the coming months as it tries to limit the possibility of a deep and prolonged recession.

Adding to that picture is slowing wage growth, down 0.1pc to 3.4pc including bonuses and 0.1pc to 3.6pc excluding bonuses in the three months to August, according to ONS figures. Wage moderation is expected to continue as companies try and limit wage bills during the downturn and rising unemployment deters employees from pushing for wage rises.